I bring good news for the new year: Qualified charitable distributions from your IRA have been resurrected. 

If your response is, I have no earthly idea what the heck is she’s talking about, hang on. I’ll fill in the details. 

I’m talking about the tax bill compromise—a recently passed bill that revives a tax break from the past. But before we dive into the specifics, let’s start with a little background information. 

If you have an Individual Retirement Account (IRA) and you turn 70 ½, you are required by law to take a set amount of money out of your IRA each year for the rest of your life. It’s not an option. You have to do it. These mandated amounts are called the Minimum Required Distributions or MRDs. 

So when do you have to start withdrawing? 

The first withdrawal must be taken by April 1 of the year after the calendar year in which you turn 70 ½. 

For those of you who are looking forward to that influx of cash, go grab a leftover turkey sandwich, because you probably don’t care about the rest of what I have to say. But before you head for the fridge, let me give you a little more good news: You can always take out more than your MRD but not less. 

For those of you who don’t want to withdraw from your IRA when the time comes, don’t get testy. You will be slapped with a steep penalty if you don’t do it — up to 50 percent of the amount that you did not take. 

The IRS has a formula for calculating your MRDs. (No, it’s not a crystal ball. They actually came up with a real calculation.) Your MRD is calculated by taking the account value of your IRA as of Dec 31 of the previous year and dividing it by your life expectancy factor. For example: 

Jack’s age in 2011:                                             73 

2011 life expectancy factor:                         24.7

(Based on the Uniform Lifetime table) 

Jack’s IRA account balance:                        $320,000

(As of Dec 31, 2010)        

 Jack’s MRD amount:                                      $12,955

($320,000 ÷ 24.7)         

Based on the above example, Jack will have to withdraw a minimum of $12,955 this year. 

If that “forced” withdrawal annoys you, you now have another option, thanks to the tax bill. 

Maybe your IRA is not your life line. It is just extra money for you. You still have no choice at a certain age but to take your MRD, so why not put it to a good use and get a tax deduction? 

Under the new tax law, you can instruct your IRA custodian to take up to $100,000 (per tax year) of your IRA money and donate it to a qualified charity of your choice. This distribution will count as your MRD for 2010 and 2011. 

It’s a win-win-win. You are donating to your favorite cause, satisfying your minimum required distribution, and potentially sheltering yourself from taxes on the IRA distribution. 

Of course, we’re dealing with taxes here, so there are lots of rules. For example, you can only claim a charitable contribution deduction for the portion of the IRA money that would be included in your income (the part that is considered non-deductable earnings). It’s worth your time to consult with your tax advisor about the details. 

So if you’re dreading having to take your MRD this year, rejoice! You have another option.

Mystified by money? Ask Denisa and improve your financial literacy. Denisa Tova MBA, CFP®, CDFA is a Colorado Springs-based Certified Financial Planner and CEO of DaVinci Financial Planning. Submit financial questions to her at denisa.tova@gazette.com.